Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Q3 2016 Earnings Presentation
51 slides from Federal Agricultural Mortgage's earnings presentation, Nov 9, 2016
Slide 1: 2016 Equity Investor Presentation Third Quarter
2016 Equity Investor Presentation Third Quarter
Slide 2: Forward-Looking Statements
FARMER MAC Forward-Looking Statements In addition to historical information, this presentation includes forward- looking statements that reflect management’s current expectations for Farmer Mac’s future financial results, business prospects, and business developments. Forward-looking statements incl
Slide 3: Use of Non-GAAP Financial Measures
FARMER MAC Use of Non-GAAP Financial Measures This presentation is for general informational purposes only, is current only as of September 30, 2016, and should be read in conjunction with Farmer Mac’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2016. In the analysis of its finan
Slide 4: Table of Contents
FARMER MAC Table of Contents 05 Executive Summary 13 Agricultural Industry Highlights 22 Farmer Mac Overview 33 Farmer Mac Financial Performance 40 Appendix EQUITY INVESTOR PRESENTATION 2016 04
Slide 5: Executive Summary
Executive Summary
Slide 6: Farmer Mac Overview
FARMER MAC Farmer Mac Overview Created in the 1980s to help provide a deeper credit market for rural America • Provide wholesale financing, secondary market and credit enhancements for agricultural and rural utilities lenders • Increase access to credit and drive more efficient credit pricing for ru
Slide 7: Agricultural Real Estate Mortgage Market Structure
FARMER MAC $12.0 Billion {5.7% Market Share} Agricultural Real Estate Mortgage Market Structure EXECUTIVE SUMMARY 07 FINANCIAL INVESTORS (Developing Market) | various institutional investors investing in agricultural assets (and seeking leverage) FARM CREDIT SYSTEM (GSE) Retail & Agribusiness NON-FC
Slide 8: Rural Utilities Cooperative Mortgage Market
FARMER MAC Rural Utilities (RU) Cooperative Mortgage Market EXECUTIVE SUMMARY 08 FARM CREDIT SYSTEM (GSE) NON-GSE RU LENDERS $ 1 5 B il li o n $2 3 B illio n C O B A N K (2) (3) $3.9 Billion {10.3% Market Share} Secondary Market CREDIT PROTECTION W HOLESALE FINANCING LOAN SALES Rural Utilities Coope
Slide 9: Farmer Mac Business Volume
FARMER MAC Farmer Mac Business Volume $ IN BILLIONS Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q16 Agricultural Outstanding Business Volume $3.1 $4.2 $5.5 $5.8 $5.5 $5.3 $7.2 $8.5 $9.0 $8.6 $9.6 $9.6 $10.7 $11.4 $11.9 $12.0 $12.8 Total Outstanding Volume $3
Slide 10: Agricultural Industry Dashboard
FARMER MAC $2,730 $2,950 $3,020 $3,010 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 2013 2014 2015 2016 $ P E R A C R E Land Value (2)(4) Agricultural Industry Dashboard $124 $93 $81 $71 $0 $20 $40 $60 $80 $100 $120 $140 2013 2014 2015 2016F $ I N B IL L IO N S Farm Income (1) 297 201 182 174 1
Slide 11: Farmer Mac Dashboard
FARMER MAC Farmer Mac Dashboard $49.6 $54.9 $53.0 $47.0 $39.8 $0 $10 $20 $30 $40 $50 $60 2012 2013 2014 2015 3Q16 YTD $ I N M IL L IO N S Core Earnings EXECUTIVE SUMMARY 11 104 96 91 87 84 0 20 40 60 80 100 120 2012 2013 2014 2015 3Q16 YTD B A S IS P O IN T S Net Effective Spread $13.0 $14.0 $14.6 $
Slide 12: Farmer Mac's Investment Highlights
FARMER MAC Farmer Mac’s Investment Highlights •Rigorous underwriting standards •Low delinquencies •Low cumulative historical credit losses Quality Assets •Finance assets through issuance of low-cost public debt •Issue at narrow, GSE spreads to U.S. Treasuries Funding Advantage •Robust worldwide dema
Slide 13: Agricultural Industry Highlights
Agricultural Industry Highlights
Slide 14: Agricultural Industry Highlights: Grain Prices, Farm Income, Land Values
FARMER MAC Grain prices fell in 2015 due to record plantings/yields; livestock also under pressure • U.S. agricultural product use increased in 2015; however, ending stocks also increased due to record grain production • Exports decreased 11%, driven by a stronger dollar and greater competition in o
Slide 15: Global Outlook
FARMER MAC Global Outlook Demand • USDA’s Future Agricultural Resources Model (FARM) projects a 75% increase in total production and consumption of major field crops between 2005 and 2050 • 43% increase in global population • Higher protein diets as incomes in developing countries increase • Thus si
Slide 16: Farmer Mac's Unique Market Position
FARMER MAC Farmer Mac’s Unique Market Position Farmer Mac enjoys a unique position, sharing in upside opportunity in strong markets and benefiting from downside protection and increased relative demand in weak markets Strong Market – Farmer Mac can participate in the upside • Situation: Credit is he
Slide 17: Farmer Mac's Downside Protection
FARMER MAC Farmer Mac’s Downside Protection Conservative underwriting with significant focus on repayment strength and low LTVs • Total Debt Coverage (TDC) ratio of at least 1.25x • Generally maximum LTVs of 60% to 70%, but in practice average 40% to 45% on mortgages purchased • Require minimum borr
Slide 18: Farm Income and Related Trends
FARMER MAC $48 $51 $55 $39 $61 $87 $79 $57 $70 $78 $62 $77 $114 $96 $124 $93 $81 $71 174 187 260 50 100 150 200 250 300 350 $0 $20 $40 $60 $80 $100 $120 $140 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F IN D E X $ I N B IL L IO N S Nominal Farm Income Gr
Slide 19: Ag Land Value and Leverage Trends
FARMER MAC Ag Land Value and Leverage Trends $1.0 $1.1 $1.2 $1.2 $1.3 $1.3 $1.6 $1.8 $2.0 $2.2 $2.1 $2.2 $2.3 $2.5 $2.7 $3.0 $3.0 $3.0 $48 $51 $55 $39 $61 $87 $79 $57 $70 $78 $62 $77 $114 $96 $124 $92 $81 $71 $0 $20 $40 $60 $80 $100 $120 $140 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 1999 2000 2001 20
Slide 20: Agricultural Risk Management Tools
FARMER MAC Agricultural Risk Management Tools Farmers today use a broad array of risk management tools, many of which were not available or not accepted during the ag credit crisis of the 1980s • Many now view costs of hedging simply as a cost of doing business • Have learned from their parents’ exp
Slide 21: USDA – Key 2016/17 Forecasts
FARMER MAC USDA – Key 2016/17 Forecasts Demand for U.S. agricultural products to increase 6% • Demographic trends and a stabilizing economy contributing to growth • Lower commodity prices stimulating quantity demanded • Total U.S. export values to increase 5% to $133 billion led by greater interest
Slide 22: Farmer Mac Overview
Farmer Mac Overview
Slide 23: Lines of Business and Products
FARMER MAC Lines of Business and Products Product Type Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks • Insurance Companies • Rural Utilities Cooperatives F & R USDA RU IC Total $3.3 19% $2.0 12% $1.0 6% -- $6.3 37% WHOLESALE FINANCING • AgVantage
Slide 24: Business Development
FARMER MAC Business Development Product Type Marketing Channel Target Customers AG LOAN PURCHASES AND CREDIT PROTECTION • Marketing department with 5 relationship managers • Geographically dispersed nationwide • Cover ag banks and non-bank originators • Seek to add new ag lenders as eligible loan se
Slide 25: Outstanding Volume - Portfolio Summary
FARMER MAC Outstanding Volume - Portfolio Summary Farm & Ranch 34% USDA Guarantees 12% Rural Utilities 11% Institutiona l Credit 43% By Line of Business AgVantage 43% On-Balance Sheet Loans 25% LTSPCs 18% AMBS 2% USDA 12% By Product Type FARMER MAC OVERVIEW 25 AS OF SEPTEMBER 30, 2016
Slide 26: Farm & Ranch Loans Portfolio Diversification
FARMER MAC Northwest 10% Southwest 30% Mid-North 34% Mid-South 14% Northeast 4% Southeast 8% By Geographic Region Crops 56% Permanent Plantings 17% Livestock 21% Part-time Farm 5% Ag. Storage and Processing 1% By Commodity Type Farm & Ranch Loans Portfolio Diversification FARMER MAC OVERVIEW 26 (1)
Slide 27: Core Earnings Value Drivers
FARMER MAC Core earnings are primarily a direct function of three key factors: Core Earnings Value Drivers FARMER MAC OVERVIEW 27 Value Drivers Things to Consider BUSINESS VOLUME •Macro supply/demand for ag credit •Farmer Mac business development success • Impact of potential credit quality shocks •
Slide 28: Farmer Mac Outstanding Business Volume
FARMER MAC Farmer Mac Outstanding Business Volume $17.2 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q16 $ I N B IL L IO N S FARMER MAC OVERVIEW 28 12.6% CAGR (1999 to 2015)
Slide 29: Farmer Mac Net Effective Spread
FARMER MAC Farmer Mac Net Effective Spread FARMER MAC OVERVIEW 29 69 78 106 97 106 106 104 96 91 87 84 0.9% 0.9% 1.8% 2.0% 1.1% 1.0% 1.3% 0.9% 0.7% 1.1% 1.2% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 0 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q16 YTD M OO D Y ’S C OR P OR A TE S P
Slide 30: Farmer Mac Credit vs. Industry
FARMER MAC (1) Source: Kansas City Federal Reserve, Ag Finance Databook & Farm Credit Funding Corp Annual Information Statements – Non-accrual real estate loans and accruing loans that are 90 days or more past due made by commercial and Farm Credit System banks; 3Q16 data not yet available. (2) Deli
Slide 31: Farmer Mac – Historical Credit Losses
FARMER MAC Farmer Mac – Historical Credit Losses Farmer Mac’s Rural Utilities, USDA Guarantees, and Institutional Credit lines of business have not had any credit losses to date Farm & Ranch line of business has historical cumulative losses of 0.16%, or less than 1bp per year • Cumulative losses of
Slide 32: Funding
FARMER MAC Funding Finance asset purchases with proceeds of debt issuances • 20+ dealers • Match-funding provides for stable net effective spread and immaterial interest rate risk Farmer Mac’s debt securities carry privileges for certain holders • 20% capital risk weighting • Eligible collateral for
Slide 33: Farmer Mac Financial Performance
Farmer Mac Financial Performance
Slide 34: Third Quarter 2016 Financial Performance
FARMER MAC Third Quarter 2016 Financial Performance Net effective spread (NES) of $32.2 million (86 bps) compared to $31.0 million (84 bps) last quarter, and $30.4 million (88 bps) in third quarter 2015 • Increase in 3Q16 NES driven by lower short-term LIBOR-based funding costs, growth in outstandin
Slide 35: Core Earnings (Non-GAAP Measure)
FARMER MAC $11.7 $11.3 $11.0 $9.1 $12.4 $12.9 $16.5 $23.2 $11.6 $13.0 $13.4 $11.8 $9.3 $13.2 $14.4 $11.6 $15.3 $9.5 $13.1 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 2012 2013 2014 2015 2016 $ I N M IL L IO N S 1Q 2Q 3Q 4Q $49.6 $54.9 $53.0 $47.0 Core Earnings (Non-GAAP Measure) FARMER MAC FINANCIAL PE
Slide 36: Business Volume
FARMER MAC Business Volume FARMER MAC FINANCIAL PERFORMANCE 36 $5.2 $5.4 $5.8 $5.5 $6.0 $6.0 $6.4 $6.7 $6.7 $7.4 $1.7 $1.8 $1.9 $1.9 $2.0 $1.1 $1.0 $1.5 $1.5 $1.8 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 $20.0 2013 2014 2015 3Q15 3Q16 $ I N B IL L IO N S Farm & Ranch Institutional Cred
Slide 37: Net Effective Spread (Non-GAAP Measure)
FARMER MAC Net Effective Spread (Non-GAAP Measure) $117.2 $116.6 $113.7 $119.4 $93.2 1.04% 0.96% 0.91% 0.87% 0.84% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 2012 2013 2014 2015 3Q16 YTD $ I N M IL L IO N S Net Effective Spread (dollars) Net Effective
Slide 38: Credit Quality – 90-Day Delinquencies
FARMER MAC Credit Quality – 90-Day Delinquencies FARMER MAC FINANCIAL PERFORMANCE 38 $40.8 $33.0 $24.7 $36.7 $18.4 0.93% 0.66% 0.46% 0.67% 0.31% 0.33% 0.24% 0.18% 0.23% 0.11% -0.10% 0.10% 0.30% 0.50% 0.70% 0.90% 1.10% 1.30% $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 3Q12 3Q13 3Q14 3Q1
Slide 39: Capital
FARMER MAC $591 $766 $564 $558 $587 $192 $345 $102 $115 $112 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $0 $200 $400 $600 $800 2013 2014 2015 3Q15 3Q16 E X C E S S S T A T U TO R Y C A P IT A L $ IN M IL L IO N S C O R E C A P IT A L $ I N M IL L IO N S Core Capital Excess Statutory Capital AS O
Slide 40: Appendix
Appendix
Slide 41: Key Company Metrics
FARMER MAC Key Company Metrics APPENDIX 41 ($ in thousands, except per share amounts) 3Q16 YTD 2015 2014 2013 2012 Core Earnings $39,859 $46,975 $53,047 $54,892 $49,642 Core Earnings per Diluted Share $3.71 $4.15 $4.67 $4.90 $4.51 Net Effective Spread ($) $93,174 $119,380 $113,693 $116,582 $117,190
Slide 42: Quarterly Core Earnings Summary
FARMER MAC ($ in thousands) Sep-16 Jun-16 Mar-16 Dec-15 Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Revenues: Net effective spread 32,199$ 31,026$ 29,949$ 29,949$ 30,387$ 29,787$ 29,257$ 28,442$ 29,766$ Guarantee and commitment fees 4,533 4,810 4,669 4,730 4,328 4,085 4,012 4,097 4,152 Other (32) (125) (517)
Slide 43: Reconciliation of Net Income to Core Earnings
FARMER MAC Reconciliation of Net Income to Core Earnings APPENDIX 43 ($ in thousands) Sep-16 Jun-16 Mar-16 Dec-15 Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Net income attributable to common stockholders 16,364$ 12,006$ 10,317$ 15,032$ 8,359$ 22,162$ 1,818$ 5,647$ 11,586$ Reconciling items: Unrealized gains
Slide 44: Reconciliation of Net Income to Core Earnings
FARMER MAC Reconciliation of Net Income to Core Earnings APPENDIX 44 (in thousands) 3Q16 YTD 2015 2014 2013 2012 Net income attributable to common stockholders 38,687$ 47,371$ 38,251$ 71,833$ 43,894$ Less reconciling items: Unrealized (losses)/gains on financial derivatives and hedging activities (3
Slide 45: Reconciliation of Net Income to Core Earnings per Share
FARMER MAC Reconciliation of Net Income to Core Earnings per Share APPENDIX 45 Sep-16 Jun-16 Sep-15 Sep-16 Sep-15 GAAP - Diluted EPS 1.54$ 1.13$ 0.74$ 3.60$ 2.85$ Less reconciling items: Unrealized gains/(losses) on financial derivatives and hedging activities 0.14 (0.20) (0.62) (0.34) 0.71 Unrealiz
Slide 46: Reconciliation of Net Effective Spread
FARMER MAC Reconciliation of Net Effective Spread APPENDIX 46 (in thousands) 3Q16 YTD 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net interest yield 0.89% 0.88% 0.51% 0.89% 1.14% 1.30% 1.30% 1.68% 1.62% 0.85% 0.85% Net effect of consolidated trusts 0.02% 0.01% 0.00% 0.00% 0.02% 0.06% 0.15% 0.0
Slide 47: Farmer Mac's Net Effective Spread History
FARMER MAC Farmer Mac’s Net Effective Spread History APPENDIX 47 ($ in thousands) Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield For the quarter ended: September 30, 2016 10,703$ 1.90% 5,189$ 1.07% 2,643$ 1.05% 11,427$ 0.75% 2,237$ 0.24% 32,199$ 0.86% June 30, 20
Slide 48: Liquidity – Investment Portfolio
FARMER MAC Liquidity – Investment Portfolio Farmer Mac maintains an investment portfolio to provide back-up source of liquidity in excess of regulatory requirements • Minimum of 90 days of liquidity required by regulation $3.3 billion investment portfolio at September 30 • Cash and highly-rated inve
Slide 49: Interest Rate Risk
FARMER MAC Interest Rate Risk Match fund asset purchases with liabilities that have similar interest rate characteristics • Duration and convexity matching • Coupon type • Reset frequency Manage pre-payment risk on mortgages • Issue a portfolio of callable and bullet debt across spectrum of maturiti
Slide 50: Three Classes of Common Stock
FARMER MAC Three Classes of Common Stock Number of Shares CLASS A VOTING COMMON STOCK • NYSE: AGM.A • Ownership restricted to non-Farm Credit System financial institutions 1.0 million CLASS B VOTING COMMON STOCK • Not publicly traded • Ownership restricted to Farm Credit System institutions 0.5 mill
Slide 51: Three Classes of Preferred Stock
FARMER MAC Three Classes of Preferred Stock Number of Shares SERIES A NON-CUMULATIVE PREFERRED STOCK • NYSE: AGM.PR.A • Dividend Yield: 5.875%** • Option to redeem at any time on or after January 17, 2018 • Redemption Value: $25 per share 2.4 million SERIES B NON-CUMULATIVE PREFERRED STOCK • NYSE: A
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